Friday, December 4, 2015

And just like that, all those reasons given yesterday for puking the US markets (oh no Yellen is hawkish, oh no Draghi failed to deliver, oh no another boring mass murder) have apparently disappeared as of this morning.

This is why regular drug testing should be mandatory for anyone with a Series 7.

Facebook founder and his wife have decided to give away 99% of their fortune. That is $45 billion.

[...]

I have a better idea. If what is wanted is for this money to work for all, if we are to achieve the Donald’s directive of everyone moving into the upper stratum, that wages are too high (as even Caterpillar has acted on multiple times), then we have change our idea about what a billionaire should be doing when they decide to give away their excess wealth from unearned income.

Put it in a trust fund for their employees. Think about it. Facebook has (most recent count I could find) 11,996 employees. They could just distribute it to all of them for a share of $3,751,250.42 each. Ok, but not the most assured security for their employees. Instead, they could put it in a trust fund that then distributes its earnings. You know, kind of like that old fashioned pension system - only for active employees. If it earned 5%/year, the employees would receive $187,562.52 each per year. Heck, put it in tax free bonds and make it a real Xmas gift each year (less earnings but…)

Even if they only put 10% of the $45 billion in a fund to be distributed you’re talking about $18,756.25 per year (5% earnings). That would go a long way toward helping their employees make ends meet.

Consider also what all that money being spent by the 11,996 employees would do for their local economy and on whole the US economy. At 5% earnings distributed to the employees we’re talking $2,250,000,000 a year additional economic activity. Ok, let’s say 5% is wishful thinking. Then cut it in half. It’s still one S@#$ load of money.

Come on Zuckerberg. You’re supposed to be some kind of hot shot forward thinker. Think about the contributions your employees made toward your amassing this pile of earnings/wealth compared to what you paid them. Think about what you would have been paying them if we still had a system in place that assured wages tracked equally with productivity as in the past.

But I'm sure it's no big deal what Zuckerberg does. After all, I bet his employees will be happy about all that charitable giving the company did when they're in their 60s and living in a cardboard box under a bridge, eating cat food.

A further reason for scepticism about technological stagnation is that this explanation has been advanced in recessions and depressions ever since the beginning of the capitalist business cycle in the nineteenth century. Such claims represent the flipside of the equally common claim, made during every period of sustained expansion, that the economy has entered a New Era of untrammelled growth. The most recent episode of this kind was the ‘irrational exuberance’ of the 1990s, fuelled by optimistic claims about the potential economic implications of the Internet, which was opened to commercial use by the US Congress in 1992, and by capitalist triumphalism exemplified by Fukuyama’s The End of History.The collapse of the ‘dotcom’ bubble was softened by the housing bubble that developed shortly afterwards (again, not at all a new phenomenon), but the result was only to worsen the inevitable crash in 2008. The similarity of these events to previous bubbles and busts is good reason to doubt that they represent, or that they have inaugurated, a new phase in the evolution of capitalism.

Personally, I still think that secstag, to the extent it exists, is entirely the product of right-wing ideology:

1. Excess saving beyond the demand for investment creates a ZLB problem, but the Asian part of excess saving was demanded by the IMF, and the kleptocratic elite/corporate side of excess saving is facilitated by right-wing kleptocratic international tax arbitrage.

2. Government investment demand can fix things; yet right-wingers demand not only that governments avoid deficit spending to fight their way out of recessions, but also (in the case of Europe) demand that countries balance budgets in the midst of contractions.

3. Similarly, right-wing austerianism has encouraged a worldwide deficit in public infrastructure spending. Sorry, but you can't have economic growth without public infrastructure.

4. (I've only just learned Mundell-Fleming, but) If Y-bar really equals Af(K,L), or more precisely Af(K,L,G,H) where G is public infrastructure and H is human capital, then obviously the long-term trend in Y-bar will drop to zero as right-wingers demand less and less investment in infrastructure and human capital. These capital deficits add up.

5. Even moreso (still with Mundell-Fleming), the right-wing demand for excess central bank fixation on deviations of Y above Y-bar will mean dragging the long-term trend down. You can't speed up when you're always tapping on the brake.

Sounds like a great basis for a mass-market economics book.

But I'd still accept Quiggin's observation that this whole secstag thing might just be cyclical. I'd say it's not a "recency effect" problem, but rather that there are long-run cycles where economic policy slowly oscillates from stupidity to common sense.

In which case, there's no point wasting time writing the book, since it'll probably all fix itself eventually.

WSJ RTE - statisticians' plea: please pick up the phone. I worked in market research surveys when I was a kid, and we had a nasty refusal rate even back then; apparently it's gotten worse now, to the point where the data being collected is utterly useless:

Surveys of businesses and households make up the bulk of data sources handled by government statisticians. To compile economic growth figures, the U.K.’s Office for National Statistics polls about 350,000 businesses a year, a third of which are contacted more than once. For unemployment data, roughly 36,000 interviews of households are conducted each quarter by Britain’s official statistics agency.

Unlike business surveys, households are not required to answer the questions posed by statisticians over the phone or face-to-face, except when it comes to the census. Sometimes, officials fail to contact those people they randomly select to answer the survey. But more often than that, respondents refuse to participate—and they are increasingly doing so.

[...]

“Were response rates to continue to fall it would constitute a threat to the representativeness and quality of the data,” the report warned Wednesday, as very often those who don’t participate have specific reasons to do so—or features that set them apart.

So, here's the thing: if the quality of the data is dependent on the response rate, and the data is vital to the continued operation of the economy, then someone's making money off every response, right?

So why the fuck aren't you paying respondents for their valuable information?

You've been telling us in the peasant class that there's no such thing as a free ride, and we all have to earn our keep, and we have to pay for every "service" provided, and the government and our employers will leave us in a fucking ditch to bleed to death if they ever get a chance.

So why are you then expecting us to give you free information? You want us to subsidize the capitalist kleptocracy with our time, do you?

According to Berta Barbet, political science researcher at the University of Leicester, the IT revolution has helped connect people, but at the same time makes them increasingly weary of picking up the phone when an unknown number is calling—or even open the door to a stranger. “The photo we get is less representative of what reality looks like,” she added.

Wanna know why we don't open our doors to strangers? Maybe it's because most everyone who comes to our door is explicitly looking to fuck us over. The capitalist kleptocracy is brainwashing university students to act like psychopaths by going door to door, tricking little old ladies into signing up for criminally-priced long-term utility contracts. And there is now an army of Pakistanis phoning the entire western world every Friday afternoon, trying to get us to sign up for air duct cleaning.

The irony is that, as far as the average homeowner is concerned, your government survey staff are doing exactly the same thing: trying to screw us out of stuff (in this case, information) for free.

Fuck you. This is the point where you better start living by the neocon economics that you preach to us whenever you fuck us out of our pensions. Start paying respondents. Your free ride has ended.

Here's Simon Wren-Lewis (who's a British economist, not an American media clown) on how the German internal devaluation contributed to the EZ crisis:

It is hard to overstate the importance of all this. German employers and employees connived in a policy that would take jobs away from their Eurozone partners. Whether this was done knowingly, or because of a belief is some kind of wage-fund doctrine, or something else I do not know. But it makes Germany, a country with perhaps a unique ability to cooperate on an internal devaluation of this kind, a dangerous country to form a currency union with. The thing I find extraordinary about all this is that Germany’s neighbours seemed to have let it happen without a whisper of recognition or complaint.

And if you weren't paying attention yesterday, he's commenting on this report by Peter Bofinger, one of the five members of Germany’s Council of Economic Experts, who is German and therefore not an American:

If the global downturn were being imported into the US via the stronger $ with sufficient force to cause not just a more pronounced slowdown, but an outright contraction, it would show up in fewer vehicle purchases. We're simply not there.

Wednesday, December 2, 2015

Let me now turn to where I see the economy is likely headed over the next several years. To summarize, I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation to our 2 percent objective. I expect that the fundamental factors supporting domestic spending that I have enumerated today will continue to do so, while the drag from some of the factors that have been weighing on economic growth should begin to lessen next year. Although the economic outlook, as always, is uncertain, I currently see the risks to the outlook for economic activity and the labor market as very close to balanced.

And she also admits the US isn't close to full employment, and the inflation rate is still below target.

Also,

Among emerging market economies, recent data support the view that the slowdown in the Chinese economy, which has received considerable attention, will likely continue to be modest and gradual. China has taken actions to stimulate its economy this year and could do more if necessary. A number of other emerging market economies have eased monetary and fiscal policy this year, and economic activity in these economies has improved of late. Accommodative monetary policy is also supporting economic growth in the advanced economies. A pickup in demand in many advanced economies and a stabilization in commodity prices should, in turn, boost the growth prospects of emerging market economies.

Got even more, J-dog?

Also, the budget situation for many state and local governments has improved as the economic expansion has increased the revenues of these governments, allowing them to increase their hiring and spending after a number of years of cuts in the wake of the Great Recession. Looking ahead, I anticipate that total real government purchases of goods and services should have a modest positive effect on economic growth over the next few years.

And so on and so on.

You can either listen to a professional economist who hangs out with professional economists and is respected by professional economists, or you can listen to whatever clown is talking to Business Insider because he's worried he's about to get the chop at his shitty underperforming bank.

You've got to be shitting me! I thought only crappy gold miners do dilutive share offerings!

Credit Suisse plans to raise 6 billion Swiss francs ($6.3 billion) from investors, slim down its investment bank and cut jobs as new chief Tidjane Thiam embarks on the biggest overhaul of the Swiss bank in almost a decade.

Credit Suisse is emphasising wealth management and growing in Asia, echoing moves by rival UBS. It joins rivals including Barclays and Deutsche Bank as well as UBS in scaling back investment banking as tougher regulations squeeze profitability.

Thiam, 53, hired from insurer Prudential, also said he will float shares in Credit Suisse's domestic Swiss bank and cut 2 billion francs in annual costs, giving his vision for Switzerland's second-biggest bank almost four months into the job.

He is raising cash to bolster the bank's capital position, which is one of the weakest in the sector. Thiam said the decision had gone down well with regulators in a meeting.

Seriously? This raises some interesting questions:

1. Why the hell is your capital position so terrible?

2. Aren't all your costs, including the $2B that Thiam is cutting, supposed to be covered by earnings? I mean, you're a fucking bank. You take deposits, lend them out, and collect your vig. How the fuck hard is this? You having trouble mastering the business of being a fucking bank? Royal, TD/Canada Trust, Scotia and BMO have no fucking problem turning a profit every year, year in and year out, whether boom or recession; why is it so difficult for you guys? Is it just that the Swiss are fucking terrible with money?

3. If you really need capital so much, why not borrow the $6B? Haven't you heard that borrowing rates are at a millenial low? Why not issue a bond? I mean, maybe if you were a grossly unprofitable fucking clowncar of a company like the average gold miner, where you were pretty sure you were never going to turn a profit again, then I could understand why you would prefer dilution; but a bank? Isn't there a lineup of people out there who'd love to lend $6B to a bank at, say, a 2% coupon for 10 years? Y'know, with the global savings glut and all?

Message for Tidjane Thiam: if you want help deciding who to lay off, I have four words for you. Mandatory random drug testing.

I guess maybe the US consumer really is important, the US dollar doesn't mean much, the supposed black Friday sales collapse is meaningless, and generally the bears are just a bunch of idiots who are in a snit because they haven't made money all year and maybe some of their smarter clients are starting to ask uncomfortable questions.

Cos the bears were the titclowns who puked QQQ to $85 just 3 months ago, probably. Because they have no fucking clue how to manage money.

They don't need to have any clue, because they get 2% & 20% just for being bourgeois parasite scum.

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This index is indicated decent expansion in October, and it appears restaurants are benefiting from lower gasoline prices and the improved labor market.

But remember that Andy Garthwaite at Credit Suisse thinks restaurants aren't businesses, consumers aren't aggregate demand, and the labour market is nothing but a den of sociamalism that exists only to suck money out of the pockets of investors.

Because that's exactly what an ignorant uneducated bourgeois parasite would think.

With valuations offering little upside and a myriad of risks offering plenty of downside, Credit Suisse thinks now's a good time to cut back on your portfolio's exposure to stocks.

"We reduce our weighting in equities to a small overweight, our most bearish strategic stance on the asset class in seven years," Credit Suisse's Andrew Garthwaite said in a new note to clients.

So if you're reducing exposure to US equities, where are you putting your money, Andrew? Hm? What else offers a higher rate of return? Or are you advocating high cash? Do you take one look at interest rates and think "gee, cash and bonds is the place to be right now"? Because everyone else is already there to the tune of trillions of dollars worldwide? Is that why you want to join them?

God DAMN! China again? And you're really piddling your panties about a Fed rate hike, aren't you? I guess you'd rather have inflation? Is that what you want? Will that be better for your added weight to bonds & cash? Hm?

US equity valuations are now at fair value;

And earnings aren't going to grow? Or are you just hooked on the crack of investing in a market where P/E ratios were rising from a generational low, and because it's been 10 years of either a crash or this, you now have no clue how to invest in a normal market anymore? Are you that much of an idiot, or just a newbie? Aren't there any old greyhairs at CS who can teach you how to invest clients' money properly?

there are several warning signals (credit spreads widening, buybacks as a style underperforming, M&A activity reaching problematic levels, a decline in market breadth, earnings momentum at a 4-year low);

Um... is any one of those a real leading indicator of anything? Cos I can see at least two of those being nothing more than lagging indicators of a mid-cycle correction, you dumbshit.

the shift of power from capital to labour;

OK, and since "labour" is the US consumer, isn't that a good thing? Because you need consumers, don't you? Isn't that where US aggregate demand comes from? And don't you "strategist" types love to whine about low aggregate demand being the cause of low capital investment?

Or do you just hate the working class, you filthy bourgeois parasite?

Currently, the S&P 500 is trading at a P/E multiple of around 16.6, which is higher than average, but less than the 1.2 standard deviations away from the peak that we've seen historically.

And, dumbshit, in a secular bull market the S&P tends to trade at high valuations. Why? Do you not know why, Andy?

Defenders of the Eurozone’s initial design, subsequent management and purported reform invariably refer to the system as a ‘monetary union’. So do academic commentators including the authors of the recent Vox piece on the origins of the crisis. Whether intended or unconscious, this is an abuse of language.

Monetary unions do not experience selective bank closures, the re-introduction of exchange controls or the numerous other manifestations of financial fragmentation that have occurred before and after the Eurozone ‘reforms’. Germany is a monetary union. In 1974 the Herstatt Bank collapsed in Cologne and several banks based in Dusseldorf went down in the recent crisis. Both cities are in Nordrhein Westfalen, but there was no closure of bank branches in the state nor were exchange controls introduced by the state authorities on either occasion. Interest rates in Nordrhein Westfalen did not detach from rates elsewhere in Germany nor did bank deposits flee the state.

When the Continental Illinois Bank went under in 1984, at the time the largest-ever US bank failure, the state of Illinois was not expected to handle the fall-out. In the recent crisis the state of Delaware, home to lehmans, and the state of North Carolina, home to Wachovia, were similarly spared. The USA is also a monetary union and there is federal responsibility for bank supervision, bank resolution and the protection of bank creditors.

The Eurozone in contrast was established in 1999 as no more than a common currency area, with a ‘central bank’ responsible only for monetary policy in the aggregate, in pursuit of an inflation target. To describe it as a ‘monetary union’ is to deny that there is any distinction between a common currency area and a monetary union. If the Eurozone really was a monetary union in 2008 the history of the crisis would have been very different.

And can you think of one reason why the European Union never became a monetary union?

Tuesday, December 1, 2015

I think he's especially freaking out about the possibility that the global bankers get screwed in the long run, were Japan to follow the most intelligent policy of default, or at least partial-default-through-inflation:

Either a default or a hyperinflation would cause every Japanese financial institution, and most Japanese businesses, to fail. OMG BRB

Yeah, don't believe the hype from this guy. The only people to ever care about national default are the banksters.

And the banksters don't care because right now JGB 10Y has a 0.29% yield.

That's... uh... less than the world rate of inflation, in a currency that is in a long trend of depreciation. JBGs pay out in Yen, remember.

So the best course is to assume that Noah's written an article not even for the real banksters, but rather for the imaginary banksters who live in his head who vote Republican and chat people up on Fox News.

In other words, Noah Smith is a fucking useless parrot of insane fantasies and we can all ignore him from now on.

Global economic data published in November have shown a further uptick in worldwide activity growth after the significant dip that was reported after mid-year.

It now appears almost certain that the 2015 Q3 dip in world activity was not the precursor of a slide towards global recession. Instead, it seems to have been another of the minor mid-course corrections that have been a consistent feature of the moderate upswing in global activity that started in 2009.

So we shouldn't piddle our panties after all? Because mid-course corrections are okay, right?

China has not suffered a hard landing; but severe deflation in the manufacturing sector remains unchecked, and the economy is clearly slowing as rebalancing between old and new sectors takes effect.

Most other emerging economies are now embarking on a major deleveraging cycle, and this may drag on EM growth rates for several more years. Growth in the advanced economies as a whole has been stable at about trend rates throughout 2015; but underlying productivity growth remains extremely weak by past standards. Therefore the advanced economies do not appear sufficiently robust to withstand an intensification of the EM shock, should that occur.

Wait... you just said we're not supposed to piddle our panties. Is Jeffrey Fucking Kleintop injecting himself into your writeups too now, Gavyn?

Advanced economies aren't affected by hiccups in pissant little third world economies, Jeffy. We had no problem in 1998, we'll have no problem in the future. At worst, it'll mean more profit for Nike.

Within the advanced bloc, the most notable change has been the acceleration in the eurozone compared to the US. Many observers became pessimistic about growth in the eurozone when the China crisis occurred in August, on the grounds that exports from Europe (especially Germany) are more exposed to Chinese demand than is the US. These differences in trade exposures have been exaggerated, and in any event have been offset by fiscal and monetary easing in the eurozone, and the decline in the exchange rate.

Nevertheless, it is important to remember that even in the best of times, there has never been a European company worth investing in, so it's never paid to follow the hedgefund lemming brigade into Europe ETFs.

It's especially worse now, as Germany has proven happy to continually sabotage European growth in favour of more profits (and socialized losses) for Deutsche Bank.

New Deal Demoncrat - intensified deflationary pulse. Two things, NDD. One, collapsing commodity prices is good deflation. Two, the Fed is concerned with what the trend will be a year from now, not what it is now: it takes that long for transmission.

But with that in mind, it'd make perfect sense for the Fed to not raise rates in December, because not only are they not going to be above their 2% inflation target in a year, but also 2% is supposed to be a target and not a hard limit. I hope Yellen has the intelligence to realize that.

And in any case, isn't this what the past 35 years of neocon fiscal and monetary policy has been aiming for? We now have zero inflation and real interest rates at zero, and all because of far more world savings than there is world debt to mop it up. Wasn't that what every decision since Volcker was aiming for? Isn't this the paradise that the capitalist elite set out to build?

And now you're trending down to zero world growth, because it's more important that you let the kleptocratic elite hide all their money in secret bank accounts in Switzerland and Florida and the Channel islands than it is to force them to reinvest that money to produce increased productivity.